climatefinancelandscape.org

Climate Policy Initiative (CPI) produces the most comprehensive inventory of climate change investment available. We are committed to improving the understanding of climate finance flows at the global, national, and local levels.

This site features climate-relevant investment figures from 2012 through 2016 from CPI’s report, The Global Landscape of Climate Finance 2017.

Global investment to address climate change reached a record high in 2015.

2012$359 billion

2013$342 billion

2014$388 billion

2015$437 billion

2016$383 billion

Total climate finance, in billions:

2012$359

2013$342

2014$388

2015$437

2016$383

Average annual investment, 2015/2016
$410billion

$140 billion (34%)PUBLIC

$270 billion (66%)PRIVATE

Average annual investment, 2015/2016
$410billion

Public investment (34%)
$140billion

Private investment (66%)
$270billion

The record in 2015 was driven by a surge in renewable investments, particularly in China, the U.S., and Japan. The subsequent decrease in 2016 was due to a combination of falling technology costs and lower deployment in some countries.

Taking into account annual fluctuations, the average flows across 2015/2016, $410 billion, were 12% higher than during 2013/2014.

Increased private sector activity is a sign of maturing markets for wind and solar, which require less public support to drive greater private investment.

However, steady public investment continues to provide the foundation for private investment year after year.

Private sector investment grew to 68% of total climate finance in 2015 before dropping back to 63% in 2016

Project developers, which consistently drive the largest volume of private finance, increased their spending 61% from 2014 to 2015. This was likely a response from Chinese project developers to build before an important renewable energy revenue support policy was scheduled to decline.

Commercial finance institutions have also taken a larger role. The share of more traditional lenders in the climate financing mix signals a maturing technology market in some areas

The share of direct institutional investment in projects remains small but is growing rapidly – another positive signal of market maturity for some sectors.

On the public side, development finance institutions accounted for the majority of public flows, contributing 89% of the total public finance.

In anticipation of the Paris Agreement, multilateral development finance institutions committed to scale up climate finance, with targets ranging from 25 to 40% of their total business by 2020. As of early 2017, these institutions are collectively already more than 3/4 of the way towards those goals.

Investments must shift from high-carbon to low-carbon activities if we are to avoid dangerous climate change.

Total fossil fuel investment still dwarfs climate-related investment. This decreases the effectiveness of climate investment. It also introduces risks to the financial system as, for example, oil or coal assets become “stranded assets.”

There are signals that the shift is happening. Solar and wind are a clear success story.

Investment in renewable electricity generation more than doubled that of fossil fuel power generation investment over 2015 and 2016 (note this does not include upstream and downstream investments).

Annual investment in solar PV and onshore wind have led to deployment on track to meet their share of global goals to avoid dangerous climate change, according to IEA scenarios.IEA Energy Technology Perspectives 2016

Total climate finance we know is out there

Several promising trends in climate investment and policy also deserve recognition. They could mean a better outlook to come.

The Paris agreement means the majority of nations are working to implement climate plans, many of which also include investment pathways.

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Article 2.1c of the Paris Agreement includes a long-term ambition to “make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”The articulation of a long-term and systematic finance goal in an international agreement can bring focus to efforts to engage financial system actors as well as efforts to ensure domestic governmental spending as a whole is consistent with 2-degree pathways.

A number of initiatives engage broader capital markets, the financial system, and large corporations to align with low-carbon and climate-resilient development.

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Tools, investment criteria and frameworks to assist investors to embed low carbon and climate resilient business practices are becoming more commonplace. These include:

300 corporations have committed to set science-based targets on their emissions profile in line with 2-degree scenarios, to assist investors in assessing their low carbon commitments.

The Task Force on Climate-related Financial Disclosure (TCFD) established by the Financial Stability Board (FSB) launched its final report in June 2017 emphasizing the need for investors and asset managers to implement scenario analysis in assessing the physical and transition risks to climate change as well as opportunities to create investor value over the long-term.

The implementation of article 173 for French-based investors requiring reporting on portfolio alignment with low carbon transitions underscores the potential for more active regulatory environments governing asset allocation by investors.

Efforts to green existing public financial flows are beginning to take root (though more work remains).

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Since 2011, efforts by public finance institutions have contributed to greater transparency and clarity on climate finance flows. Still, there is more work to do in aligning public finance investments with low-carbon and climate-resilience needs. Specific areas for improvement include integrating climate resilience into public investment decisions, channeling finance from high-carbon activities to low-carbon ones, and ensuring national DFIs take on best practices.

New investment vehicles are on the rise.

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The Landscape tracks new and primary investments into projects, and does not capture refinancing, acquisitions or public offerings. As a result, large institutional investors and asset managers who operate primarily in secondary markets make up less than 1% of the total Landscape flows. However, through the Global Innovation Lab for Climate Finance and other initiatives, investment opportunities tailored to these investors are under development and implementation, with a focus on opportunities in energy efficiency, water, land use, insurance, and adaptation.

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About Climate Policy Initiative

Climate Policy Initiative (CPI) works to improve the most important energy and land use policies around the world, with a particular focus on finance. We answer pressing questions posed by decision makers through in-depth analysis on what works and what does not.

EXPLORE ANALYSIS

Global Overview of Climate Finance Flows

Since 2011, CPI has mapped global flows of climate finance from sources and intermediaries to instruments, recipients, and final uses.

This chart above illustrates average annual climate finance flows over 2015/2016 from public sources, private sources, through to intermediaries, instruments, and uses. The numbers featured in the main part of this website reflect the annual averages during 2015/2016.

Climate finance is defined differently by different organizations in different contexts. This chart captures any public or private investment or support that reduces emissions or builds resilience to a changing climate for which reliable data is available.

‘Sources and Intermediaries’ shows where money currently comes from, which public and private actors are playing the most important roles in terms of raising and managing climate finance, and delivering investments.

‘Instruments’ track the different financial instruments used to deliver finance by both public and private actors. This is a crucial part of the picture as the mix of different financial instruments plays an important role in how to manage the cost of climate actions.

‘Recipients’ track the initial recipients of finance from the sources or intermediaries of climate finance. Public and/or private actors invest in different ways and have different needs and objectives. Understanding the composition of this set of actors helps us to better highlight the links between the public and private sectors across the lifecycle of flows, enabling us to see, for instance, to what extent public actors are meeting their goals of promoting private sector activities.

‘Uses’ shows how much finance went to activities aimed at mitigating and/or adapting to climate change. Understanding how investments are distributed helps clarify where we stand in relation to investment goals in different regions and sectors.

EXPLORE ANALYSIS

Cities: An emerging finance destination

Over half of the world’s population currently live in urban settlements, and by 2030, 1 in 3 people will live in cities with at least half a million people. Moreover, the world’s fastest growing cities are located in developing countries, mostly across Africa and Asia. This unprecedented level of urbanisation will exacerbate environmental issues and strain the resources and infrastructure of cities if they are not well prepared.

Green bonds can be an essential source of finance for cities in developing countries to invest in low-carbon, climate-resilient infrastructure to meet the water, energy, housing, and transportation demands of their expanding urban populations. This is essential to achieve the UN’s Sustainable Development Goal 11 – making cities inclusive, resilient, and sustainable. However, currently fewer than 20% of cities in developing countries can issue bonds to local investors, and only 4% are creditworthy enough to access international capital markets.

Breakdown of green bond market flows from total issuance 2007-mid-2016

Fortunately, there has been a massive proliferation of green bond issuers in the past few years. Historically, most finance that flowed to projects in developing cities – such as for mass transit systems, district heating, and water distribution networks – did so indirectly from green bonds issued by Development Finance Institutions (DFIs) like the World Bank or the Asian Development Bank. Now, cities have a vast array of third-party options as commercial banks (like HSBC) and corporations (like energy utilities) are flooding into the green bond market.

CPI analysis of the projects sponsored by green bonds shows that USD 2.3 billion is linked to cities in developing countries: this only represents 1.7% of total green bond market flows in the last decade. CPI has prepared a report exploring long-term and short-term strategies for cities in developing countries to unleash the full potential of finance from green bonds

Green bonds can be an essential source of finance for cities in developing countries to invest in low-carbon, climate-resilient infrastructure to meet the water, energy, housing, and transportation demands of their expanding urban populations.

For example, cities that are able to issue green bonds can further enhance their creditworthiness by reducing risk and providing investors with security guarantees. Tracking and monitoring green bond flows, especially through independent reviewers, is also essential for a better credit rating. On the other hand, cities that are unable to issue green bonds can align their investment plans with the criteria of third-party green bond issuers. Either of these strategies accompanied by transparent reporting of investments, and clear government support for green initiatives will strengthen their international visibility and attract broader investment flows to cities in developing countries. This is essential to help cities achieve their economic and environmental goals.

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EXPLORE ANALYSIS

Was there a ‘Paris effect’ in mobilizing climate finance?

The 2015 record-high in mobilizing total climate finance at first glance suggests a correlation with the momentum associated with COP21 and the lead up to the Paris Agreement. However, under the surface, the story is more complicated.

The increase in overall finance in 2015 was not due to a major scale up of public finance, (despite a small increase in grants provided as official development assistance), but rather due to an increase in private finance, as falling renewable costs and continued strong policy environments led to record investments. Additionally, there was, in fact, an overall decline in public finance in 2015, however, this reflects regular annual fluctuations in flows from multilateral and bilateral DFIs – the annual average across 2013/2014 and 2015/2016 remain roughly the same.

That said, there were some signals that momentum in 2015 may have made a small difference, and may make a larger difference ahead:

The private finance data show noted increases in direct investment by institutional investors and increased lending by commercial banks, which may have been mobilized through the various investor engagement initiatives organized through conveners such as UNEP, the Principles for Responsible Investment, and the Global Investor Coalition on Climate Change.

Forty three governments committed $10.3 billion to the Green Climate Fund before the end of 2015, and, as a result, 54 projects have been financed for a total of $2.6 billion by
October 2017, replacing much needed low-cost or risk-taking capital as other climate funds come to a close. Still, the U.S. has since announced, along with its intention to withdraw from the Paris Agreement, that it will not commit the remaining $2 billion of its $3 billion pledge to the Green Climate Fund, thus dropping overall pledges to the Fund to $8.3 billion.

Overall, while it is difficult to clearly determine a “Paris effect” on financial flows, it’s worth recognizing that public finance commitments often take years to translate into investments due to lengthy budget approval processes, board deliberations, project proposal cycles, etc. Thus, public finance may increase in the coming years as the public investment cycles catch up with the stated commitments made prior to the Agreement. Moreover, many of the political commitments made before and during negotiations were in the context of 2020 targets, thus there may be significant growth from some donors and public finance institutions in the coming years.

EXPLORE ANALYSIS

India can scale up finance for its renewable energy targets with policies and financial solutions that better match investors’ needs.

India has committed to ambitious targets for clean energy, pledging that 40% of its electricity supply will come from non-fossil fuel sources by 2030, and has set a target of 175 GW of renewable energy by 2022. These goals are good for the economy, the climate, and for the 300 million people who lack access to electricity in India.

However, the growth of renewable energy in India has been dampened by both a lack of financing, and financing at unattractive terms. In particular, the high cost, short tenor, and variable interest rates of debt have made renewable energy in India approximately 30% more expensive than in the US or EU. Achieving India’s clean growth targets is going to require mobilizing a lot more financing, at more attractive terms.

CPI analysis shows that there are ways in which the government of India can use more cost-effective policies to lower its cost of support for renewable energy, and increase private investment. One promising avenue is to enable investment from foreign and domestic institutional investors, such as insurance companies and pension funds, who are a good match with the risk-return profiles of renewable energy projects.

Enabling domestic institutional investment will require financial instruments that can raise the credit rating of renewable energy projects, and CPI examined two promising instruments: infrastructure debt funds by non-banking financing companies and renewable energy project bonds with partial credit guarantees. Enabling foreign institutional investment will require currency hedging to manage currency risk, or the risk of unexpected currency devaluation, and one potential solution is a government-sponsored foreign exchange hedging facility. It will also require managing off-taker risk, or the risk of payment default by India’s public electricity distribution companies, through a government-sponsored payment security mechanism. These solutions can help mobilize capital from institutional investors and spur investments in renewable energy.

There are ways India can reduce the cost of debt to attract more investment for cleaner growth.

Roughly 40% of India’s renewable energy target is distributed solar power – rooftop solar, solar mini-grids, off-grid solar, and small-scale grid connected solar projects – which can play a key role in increasing energy access for underserved regions of India. Falling technology costs and government initiatives in India have created remarkable opportunities for rapid expansion of the distributed solar power market. However, companies in this market are often young and in significant need of early stage funding for project preparation services to help them scale up and become investment-ready. US-India Clean Energy Finance (USICEF) aims to increase energy access and drive long-term financing for distributed solar power in India, by supporting early stage project development. A partnership formed between the Indian Ministry of New and Renewable Energy, the Overseas Private Investment Corporation (OPIC), and a consortium of US foundations, USICEF will deploy millions of dollars in project preparation support that will catalyze long-term debt financing for distributed solar power from OPIC and other international financial institutions. CPI serves as the Program Manager.

Finally, increasing investment from the private sector – through investment vehicles that better match their needs – and leveraging more investment from the public sector will be essential to driving the country’s cleaner growth. The India Innovation Lab for Green Finance was developed in response to this need for better investment vehicles for green infrastructure. It is a public-private initiative that identifies, develops, and accelerates innovative solutions to finance green infrastructure for renewable energy, energy efficiency, urbanization, and other channels for green growth.

EXPLORE ANALYSIS

Finance for Energy Access

Sustainable Development Goal (SDG) 7 calls for universal access to affordable and clean energy by 2030. This objective is crucial for the fulfilment of various other SDGs, from eradicating poverty to combating climate change, yet over one billion people still live without access to electricity and more than three billion lack access to clean cooking solutions.

In order to illustrate the quantity and nature of the finance supporting the achievement of SDG 7, SE4All commissioned CPI and the World Bank to prepare a report looking at the public, private, domestic, and international finance directed at the electricity and cooking sectors of 20 High Impact Countries. These 20 countries have the highest deficit of energy access in the world, and are home to 80% of those living without access to modern energy globally.

The report finds that the current rate of investment is far too low to achieve universal energy access by 2030. The estimates provide a wakeup call for the international community to rapidly scale up investments for electricity and clean cooking.

Electricity

An estimated annual average of USD 19.4 billion was directed at electricity access in the 20 High Impact Countries between 2013 and 2014 – typically accounting for 0.25%-2.0% of a country’s GDP. Only about $6 billion of this total is estimated to result in new and improved access to electricity for residential users, with the balance improving access for commercial and industrial users. This falls well below the estimated $45 billion needed annually to meet the 2030 universal electrification target. Nevertheless, the level of residential electricity access provided was typically a high level of service. International investment, especially from public sources, was the largest source of the finance provided at $11.7 billion per year.

Almost all financial commitments for electricity in the 20 High Impact Countries were aimed at grid electricity, of which two-thirds went to renewable energy. Only 1% of total finance for electricity, approximately $200 million per year, was invested in off-grid solutions, such as solar home systems and mini-grids. Such investments in decentralized approaches are particularly important to reach remote, rural populations without energy access.

Share of finance for electricity by technology type across the High Impact Countries, 2013-2014

Clean cooking

As with electricity, financial commitments for clean cooking are well under the needed levels to meet the 2030 access targets, for which an estimated $4.4 billion per year of clean cooking investments is needed. However, the report only tracked $32 million of clean cooking investments annually between 2013 and 2014 across all 20 High Impact Countries.

International public funding was, by far, the largest source, representing approximately 80% of the overall flows in the two-year period.

The estimates provide a wakeup call for the international community to rapidly scale up investments for electricity and clean cooking in order to achieve the universal energy access goal by 2030.

EXPLORE ANALYSIS

Opportunities for scaling up climate finance through new instruments

Well-designed financial instruments and appropriate public support can play a central role in global efforts to further scale up climate finance. There are several initiatives around the world that seek to accelerate the development and creation of such instruments.

One such example is the Lab, which includes the Global Innovation Lab for Climate Finance and its sister initiatives, the India Lab, Brasil Lab, and Fire Awards.

In just three years, these initiatives have successfully identified, developed, and supported 11 actionable interventions to scale up climate finance, and 6 Fire Awards winners, which have mobilized over USD 800 million for mitigation and adaptation projects in developing countries.

In Fall 2017, the Lab launched a new class of sustainable finance instruments. After nearly a year of vetting and development by a high-level group of investors and policy makers, these instruments represent transformative finance solutions for renewable energy, climate-smart agriculture, and adaptation. They include:

The Cloud Forest Blue Energy Mechanism, which will engage hydropower operators in Latin America to pay for upstream forest conservation and restoration. Proposed by Conservation International and the Nature Conservancy, at scale, the initiative would restore and conserve 60 million hectares of cloud forest – an area nearly the size of Texas – with an associated market size of $12 billion to 2030.

Climate Smart Cattle Ranching, which will provide technical assistance and finance for Brazilian cattle ranchers to adopt sustainable ranching practices. Proposed by Naturevest and The Nature Conservancy, operations could scale to cover 300,000 hectares in the first five years, mobilizing 200 million U.S. dollars for sustainable cattle ranching practices.

CRAFT, which will be the first private equity fund to focus on expanding available technologies and solutions for climate adaptation. Developed by the Lightsmith Group, the fund already has an initial pipeline of investments under due diligence.

Distributed Generation for Cooperatives, which will scale up distributed renewable energy by partnering with agricultural cooperatives in Brazil. Proposed by Renobrax, the instrument will provide renewable energy that is 10-20% less expensive than existing options.

The Green FIDC, which tailors an existing financial structure in Brazil to provide lower-cost, long-term capital to renewable energy and energy efficiency projects. Proposed by Albion Capital and Get2C, the instrument is considering two initial pilots – energy efficient street lighting in Rio de Janeiro and a 90 MW solar PV project in the state of Ceará.

The Renewable Energy Scale up Facility, which will use an innovative options mechanism to drive long-term, low-risk private finance into earlier stages of renewable energy projects in emerging markets. Proposed by Baker & McKenzie and Get2C, as it scales, the facility is expected to mobilize around $25 of commercial investment for every $1 of concessional investment, while significantly contributing to countries’ climate and energy goals.

The Lab aims to drive billions of dollars of private investment into climate change mitigation and adaptation in developing countries.

In September, 2017, the Lab launched a new call for proposals for a next round of financial instruments and early stage businesses that can unlock investment for sustainable development challenges.

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EXPLORE ANALYSIS

Private and public adaptation finance needs to step up to meet the need

Preliminary estimates on finance flowing to adaptation show that this area has received a smaller share of public climate finance from 18%, on average, during 2013/2014, to 16% during 2015/2016. These figures represent a partial and uncertain estimate as it is affected by the different accounting approaches used for tracking finance and tracking gaps in domestic public budgets and private investment.

While multilateral development finance institutions (DFIs) have increased adaptation commitments by approximately 29%, national DFIs have seen a fall of 50%, although the latter is due largely to internal methodological changes in institutions reporting on adaptation finance.

Of the adaptation sectors, water and wastewater management captured 51% of public finance, on average, during 2015/2016. Land use adaptation in the form of agriculture and forestry management stands at 19%. Other disaster risk management interventions, such as early-warning and rapid response systems, make up 11%, or $1.9 to $2.4 billion per year on average. Such investments will become more valuable to reduce the impacts of climate change over time. For example, the recent hurricanes in the U.S., Harvey and Irma, have estimated costs of $290 billion in economic damages.
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EXPLORE ANALYSIS

The benefits of improved tracking for governments

Landscape of Climate Finance

Following the adoption of the Paris Agreement in November 2016, countries are now focusing on implementing their Nationally Determined Contributions (NDCs) and building investment strategies to draw on both domestic and international, public and private sources of finance. However, many countries lack adequate information on existing investments relevant to land use and how they align with their NDC objectives. Such information is crucial for driving economic growth while addressing climate risk effectively.

The country-based Landscapes of Climate Finance produced by CPI – available for Germany, Indonesia and Cote D’Ivoire – present the most comprehensive information available about which sources and financial instruments are driving investments toward low-carbon and climate-resilient actions. The Landscape’s approach aims to provide a picture on how, where, and from whom climate finance is flowing.

This approach helps nations scale-up the finance needed to implement their NDCs and improve their understanding of how public and private sources of finance interact by:

Providing a baseline against which to measure progress through up-to-date and comprehensive qualitative and quantitative data on the finance flowing to specific sectors.

Identifying the biggest barriers, financial gaps and opportunities to inform domestic and international actors, ensuring alignment of international support with domestic needs.

Côte d’Ivoire

As a developing country facing heavy environmental degradation, Côte d’Ivoire is a good case study on policy reform to address both economic and environmental concerns. At current rates of deforestation, the country could lose its entire forest cover by 2034. The Government of Côte d’Ivoire has recognized this threat as an opportunity to develop its “National REDD+ Strategy and Investment Plan” to implement zero-deforestation agriculture and forest cover goals.

CPI identified the potential to increase finance aligned with the Côte d’Ivoire National REDD+ Strategy objectives by over five times to USD 169 million in 2015. This can be done by greening existing agricultural finance and raising new sources of finance, including through fiscal measures, incentives for local governments, and a dedicated National REDD+ Fund.

A CPI report identified that in 2015 USD 28.1 million of investment, mostly from international sources, contributed towards Côte d’Ivoire’s REDD+ objectives. This was equivalent to 1.2% of Côte d’Ivoire’s state investment budget of that year, and only a small fraction of the estimated USD 289 million per annum needed just to meet Côte d’Ivoire’s 2030 objective of having a 20% forest cover. Whereas just five private companies, identified as the primary drivers of deforestation, invested an estimated USD 700 million in the agriculture and food sectors in 2015. This was more than four times the total public finance directed to agricultural production and processing, demonstrating the importance of ensuring that private investment, especially in the coffee, cocoa, rubber and palm oil industries, is also consistent with the Ivorian government’s REDD+ objectives.

CPI analysis has provided a baseline to track domestic and international public finance contributing to limiting deforestation and encouraging sustainable land use in Côte d’Ivoire. By looking at finance flowing into relevant sectors (known as “grey finance”) like agriculture, forestry, energy, and mining, the report identified opportunities to “green” the finance already in place so that it can also support the National REDD+ Strategy. CPI identified the potential to increase finance aligned with the National REDD+ Strategy by over five times to USD 169 million just by greening existing finance. Additionally, new sources of finance can be raised through fiscal measures, incentives for local governments, and a dedicated National REDD+ Fund.